I NTERNATIONALIZATION OF H UNGARIAN SME S ( RESULT OF AN ONLINE SURVEY )

With the help of the Hungarian Chamber of Commerce and Industry and its regional affiliates we managed to send our online survey to all members of the Chamber. We received 430 surveys which were at least partially completed with the necessary data to be analysed. There has to stated that the results are not representative of the total SME sector, but with a quite balanced regional and size distribution the survey is able to give a strong impression about the internationalization of the Hungarian SME sector. 50% of the responding SMEs were from Budapest, the other half were from all over the countryside.

5. chart Size of the responding enterprises

Source: own research

Generally 22,33% of the responding SMEs have some kind of export income with an average of 34% of their total revenue. Half of the enterprises are exporting in an amount of less than 25% of their income.

MICRO 72,56%

SMALL 22,09%

MEDIUM 5,35%

17. table Ratio of export in the SMEs’ income

% of the companies which have export income

average ratio of export of the exporting companies in their income

MICRO 16,35 % 29,28 %

SMALL 41,05 % 36,32 %

MEDIUM 26,09 % 59,02 %

Source: own research

This data shows a concentration of export activity among the Hungarian SMEs, which means that a small amount of SMEs are responsible for the export revenue of the sector. The results are showing as well, that the companies which have reached the “threshold size” are much more willing and able to trade with foreign companies. We also questioned the ownership structure of the company and we have found very interesting that the family owned companies are significantly less willing or able to step into foreign markets. The export activity ratio of family owned companies is 14 % versus the 27% of the non-family enterprises.

We also tried to measure the ratio of supply to multinational enterprises in the SMEs’ income. We have found that 23,26% of the SMEs are suppliers to multinational companies (within the Hungarian borders) with a quite high share of their income (35,79%) which means, that one quarter of the responding SMEs are depending heavily on Hungarian affiliates of multinational companies.

18. table Share and ratio of companies which have supply activity to multinationals

% of the companies which have supply activity

average ratio of supply to multinationals in their income

MICRO 22,44 % 34,24 %

SMALL 27,37 % 44,31 %

MEDIUM 17,39 % 27,00 %

Source: own research

This data shows a more equilibrated dependence of the SME sector towards multinational firms, even the difference between family and non-family owned businesses regarding this dependency on multinationals has changed in favour of family owned ones, which means that a higher share of responding family-enterprises have supply-connections with MNC-s than non-family owned ones. We have analysed how many companies are exporting and supplying a multinational inside Hungary. The

results are very interesting: only 7,67 % of the responding SMEs were able to do the two activities parallel, in which the share of small sized enterprises is nearly double of the average ratio (13,68 %).

We analysed some other type of international activities of the enterprises, like owning shares in foreign companies, membership of professional organisation, or other forms of networking.

97,2% of the responding SMEs has not any share of foreign companies. The 2,8% which have, are owning companies basically in the neighbouring countries. The results are showing that 80% of the responding SMEs does not have any type of international relations.

6. chart Ratio and type of international relations of SMEs

Source: own research

The only interesting differences which could be seen by division of size, that the medium size companies are much more likely to participate in franchise networks and international professional organisations.

We were interested in asking the opinion and demand of the responding SMEs about how to help them to maintain or increase their competitiveness. To “warm up” these questions we were questioning the enterprises about their subjective view on the change of competition in Hungary after the EU-accession in 2004. The answers were not surprising: nearly two third of the SMEs feel an increased and 30 % of them a standard high level of competition. Which is however surprising is that more than 50% of the SMEs could adapt its functioning maintaining or even increasing its market shares, and the medium size enterprises perform with an above average success rate.

19. table View on the change of competition in Hungary after 2004

ALL TOGETHER MICRO SMALL MEDIUM

1. Fighting to survive with declining market position 46,50% 48,82% 41,67% 33,33%

2. Maintained its market position 43,30% 41,75% 48,81% 42,86%

3. Strengthened its market position 10,20% 9,43% 9,52% 23,81%

Source: own research

We asked the causes of the above written tendencies with offering some fixed answers and one open possibility. We received the following results:

20. table Possible causes of the change of competition in Hungary after 2004 significant cooperation with the Hungarian Chamber of Commerce and Industry.

We can say that the EU-subsidies had in general none or little positive effect on the responding SMEs, however 32% of them are regarding the Széchenyi-card program helpful. Obviously the change in the demand of domestic market had mostly negative effect on the responding enterprises, however a quarter of them could take the challenge and were able to adapt to the new situation. What is very sad and disappointing that the majority SME sector seemingly could not have used the advantage of the single internal EU market, just 20% of enterprises responded positively on that question. Another unsurprising result was that the competition with the multinational companies did not help the SMEs, however lot of the responding firms could take advantage of the new technological developments.

After unfolding the problems and its roots in general we asked the SMEs to give a hint from which institutions they are expecting what kind of help, if any. The enterprises were allowed to mark more than one answer! The results were the following:

21. table The share of expected help from different institutions Chamber of

Professional consulting services 83,6% 13,2% 18,0% 10,9%

Unfolding of foreign market demands and

helping to enter these markets 50,3% 7,9% 50,7% 38,4%

Unfolding of domestic market demands 67,8% 33,4% 33,1% 1,9%

Interest-subsidized loan 9,3% 6,1% 89,1% 27,3%

Source: own research

It is absolutely clear that the responding SMEs are expecting a lot from the Hungarian Chamber of Commerce and Industry and its regional affiliates in the fields of training and education, professional consulting and helping to explore domestic and foreign market demands, so they should try to expand their businesses in Hungary and abroad. It is clear as well, that the expectation to promote and expand the interest-subsidized loan from Hungarian government and partially from the EU is very high!

7. chart The share of expected help from different institutions

Source: own research

To the open question we received various options, some of them were: eliminating the “gridlock^*, countable and simple tax system, eliminating corruption, stable legal system, stable exchange rates (especially EUR-HUF)

However 11,6% of the responding SMEs are not expecting any help from the EU or the local governments. This result partially reflects the very bad state (mostly financial) of the local governments and cities, and of course it reflects disappointment in the EU-funds and in the European Union itself, as well.

We were interested as well, what SMEs are willing or able to give in exchange of expected help. To answer this question we offered a multiple choice possibility where the enterprises could rank their preferences. The result of this ranking is that the responding SMEs are much more willing to create jobs and increase their turnovers than introduce environment friendly technologies or obligatory increase of their export-income.

* Gridlock is the process, in which an entrepreneur, having fulfilled its contractual obligations for, is not receiving the money for it because the client company is temporarily insolvent because of the debt other companies (or the state) owe them. This means a whole "chain of non-payment".